REFILE-UPDATE 3-Moody's gives Mexico coveted A grade sovereign rating

Wed Feb 5, 2014 8:32pm EST
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By Tomas Sarmiento and Christine Murray

MEXICO CITY Feb 5 (Reuters) - Mexico became only the second country in Latin America to earn a coveted "A" grade sovereign rating after Moody's upgraded it on Wednesday, citing major economic reforms that President Enrique Pena Nieto has pushed through Congress.

Mexican debt rallied and the peso currency also firmed after the upgrade, which should help to lower the country's borrowing costs, and could also underpin local assets amid a global emerging market sell-off.

The Moody's Investors Service decision comes after President Enrique Pena Nieto broke through gridlock in a divided Congress to push through Mexico's most significant economic reforms since the NAFTA trade deal with the United States and Canada in the 1990s.

Moody's upgraded Mexico's sovereign rating to A3 from Baa1, with a stable outlook. Only a handful of other emerging markets such as Chile, Poland and Malaysia have earned an 'A' rating.

Mexico's upgrade came even after battles between armed vigilantes and drug gangs in the western state of Michoacan spooked some investors and underscored the country's struggle to reduce drug violence that has dragged down growth.

Moody's expects last year's reforms, which include opening the state-run energy sector to private investment and a tax overhaul, to "strengthen the country's potential growth prospects and fiscal fundamentals."

Mauro Leos, the Moody's senior analyst, told Reuters the rating agency sees no further significant changes in Mexico's sovereign rating for two to three years.   Continued...